The National Electric Power Regulatory Authority (Nepra) has approved some adjustments in tariff of Karachi Electric (KE) under mid-term review mechanism under Multi-Year Tariff (MYT) for the FY 2017-23.

According to determination, the Authority having heard the petitioner, stakeholders and perusal of the information/ record has decided on the Midterm Review Petition of K-Electric as under: (i) not to allow any additional investments on existing power plants;(ii) all investments allowed to KE in the MYT 2016 were in PKR terms, thus the risk of exchange rate variations whether upward or downward rests with KE, hence no adjustment on this account has been considered; and (iii) Being cognizant of the critical need of operation of KCCP power plant on HSD, the investment of Rs.529 million, as claimed by KE for HSD operation of KCGP plant has been allowed. The Authority shall verify the reasonability of this investment through detailed scrutiny of the costs for which KEL shall submit all necessary details for Authority’s consideration. The allowed investments would be considered as an upper cap and only downward adjustment will be made in the base rate as a result of Authority’s scrutiny of KEL investment.

Accordingly, the base rate adjustment component has been adjusted upward for allowing cost of operation of KCCP on HSD by Rs.0.0014IkWh to be applicable from January 1, 2020, to be adjusted with T&D losses target for every year, along with one time positive adjustment of Rs.70 million.

The Authority has also not allowed adjustment on account of GLTIP related investment. The issue of efficiency gain, after the conduction of tests, would be decided separately by the Authority as part of its approval process for heat rate tests for BQPS- I to adjust the already allowed impact on account of under investment in transmission till the midterm period.

Accordingly, the base rate adjustment component has been adjusted downward by Rs.0.2336/kWh to be applicable from January 1, 2020, to be adjusted with T&D losses target for every year, along with a onetime adjustment of Rs. 11.772 billion.

The Authority has not considered additional investment proposed for transmission segment for the remaining MYT control period, except Rs.26.428 billion and Rs.7.325 billion, on account of 500KV grid and HUVB project, respectively. The Authority shall verify the reasonability of this investment through detailed scrutiny of the costs for which KEL shall submit all necessary details for Authority’s consideration. The allowed investments would be considered as an upper cap and only downward adjustment will be made in the base rate as a result of Authority’s scrutiny of KEL investment. Accordingly, the base rate adjustment component has been adjusted upward by Rs.0.0312/kWh to be applicable from January 1, 2020, to be adjusted with T&D losses target for every year, along with onetime positive adjustment of Rs.l.571 billion.

The Authority has not allowed any additional investment carried out in the distribution segment till the midterm review period and also not allowed any additional investment claimed for the remaining MYT control period except investment of Rs.6.819 billion for execution of the proposed rain emergency plan. The Authority shall verify the reasonability of this investment through detailed scrutiny of the costs for which KEL shall submit all necessary details for Authority’s consideration. The allowed investments would be considered as an upper cap and only downward adjustment will be made in the base rate as a result of Authority’s scrutiny of KEL investment. Accordingly, the base rate adjustment component has been adjusted upward by Rs.0.0094/kWh to be applicable from January 1, 2020, to be adjusted with T&D losses target for every year along with onetime positive adjustment of Rs.474 million.

Keeping in view the time constraints, the Authority has decided to account for the investments executed by KE on provisional basis; however, it may conduct a 100% verification of the invoices pertaining to the executed investments in due course of time either through its own professionals or through a third party, and in case of any non-verification of any document, the Authority would adjust the amount.

The component of depreciation, RoRB and O&M already allowed for Unit 3 & 4 in the MYT 2016, would be adjusted subsequently through the quarterly adjustments.

Nepra argues that the cost claimed by K-Electric with respect to the government-related entities including TDS, does not merit consideration; therefore, any cost/ amount on this account has been treated as nil, while working out capital requirements.

To adjust working capital requirement of K-Electric downward, the Authority has approved a negative adjustment of Rs.0.0540/kWh in the tariff of K-Electric going forward, along-with onetime adjustment of Rs.2.667 billion. No further indexation of negative adjustment of Rs.0.0540/kWh would be required for the future period. No adjustment has been allowed on account of KIBOR/ LIBOR.

An upward adjustment of Rs.0.0220/kWh has been allowed in the tariff on account of variations in exchange rate for the RoE, to be applicable from January 01, 2020, to be adjusted with T&D losses target for every year, along-with onetime adjustment of Rs. 1.108 billion. No adjustment on account of change in Debt Equity ratio has been allowed. Any error/ omission found at a later stage which may require any adjustment in the tariff shall be binding on K-Electric and will be adjusted, subsequently.

Based on the adjustments, the Claw Back thresholds already allowed in the MYT decision of July 05, 2018 have been revised and would be shared with consumers up till 2023. However, while calculating the amount of profit to be clawed back, the amount of onetime adjustment made in the decision would be adjusted from the revenue of the respective year to which it pertains.

Based on the observations, the Schedule of Tariff for the quarters October to December 2019 and January to March 2020, already determined on March 10, 2021, has been revised.

The story was originally published in Business Recorder on March 2, 2022.